NYSE Composite's Range Narrows

06/10/09 02:36:23 PM

by Chaitali Mohile

An advance rally of NYSE Composite Index has surged above a few previous resistances. The rally has formed a rising wedge.

Security: $NYA
Position: N/A

In early March 2009, 4181 was the lowest level for NYSE Composite Index ($NYA). The index rebounded and soon reached its first resistance levels at the 5200 level. Thereafter, the bullish momentum pulled the index higher, violating the previous high resistance. The index has recovered almost 2,000 points from the low. The rally consolidated at every essential level, and continued its upward move. The trendlines drawn connecting the higher highs and the higher lows in Figure 1 shows the shape of a rising wedge. The pattern is a bearish reversal and not an upward channel, as the two trendlines are likely to coincide at one point. Therefore, it is clear that the converging trendlines would ultimately narrow the range for the index. The descending red line shows declining volume, although the index moved higher. The reducing volume reconfirms the rising wedge formation.

FIGURE 1: $NYA, DAILY. The converging trendlines of the rising wedge would narrow the bullish rally of the index.

Graphic provided by: StockCharts.com.

The full stochastic (14,3,3) in Figure 1 bottomed in an oversold zone and supported the bullish price action. Later, the oscillator moved horizontally in an overbought area with the support of the 50 level. During the entire bullish rally on the price chart, the stochastic was zigzagging in the range between 50 and 85, indicating positive momentum. The yellow block in the moving average convergence/divergence (MACD) (12,26,9) indicates volatility in positive territory. The tangled MACD line with the trigger line shows unstable bullish moves. But since the indicator has established strong support in positive territory, the price rally is likely to continue. In addition, the average directional movement index is suggesting a developed uptrend with robust buying pressure as indicated by the positive directional index (+DI).

Although $NYA has formed a rising wedge -- a bearish reversal pattern -- a bearish breakout is not indicated in Figure 1. Currently, the index has upper resistance at the 6300 level and support at 6000. Though the momentum indicators are volatile, they are not reflecting any bearish signals. In fact, the upward journey of the index would continue in a narrow range. Since the rising wedge undergoes a bearish breakout, traders should be careful while trading near the lower trendline. But the pattern would fail if $NYA breached the upper trendline resistance and underwent bullish breakout. This pattern failure would initiate a fresh bullish move and hit the previous higher levels.

Thus, the rising wedge in Figure 1 of $NYA would narrow the bullish path of $NYA.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company:	Independent
Address:	C1/3 Parth Indraprasth Towers. Vastrapur
	Ahmedabad, Guj 380015
E-mail address:	chaitalimohile@yahoo.co.in
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NYSE Composite's Range Narrows

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